One of the U.S. largest Ethanol producers has filed for bankruptcy, continues production in Chapter 11. Sited market instability and hedging problems. Still think ethanol is good news?
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Is the business failure related to ethanol policy or the ability of a business to
manage risk? Ethanol from what I know is a margin business. Buy corn for
cost X. Process for cost Y. Sell (including subsidy) for price Z. What is left
over has to cover debt, return on investment for shareholders and
reinvestment. Any processing business who did not manage risk or has a
high debt situation will be in trouble - not just ethanol plants (which if I didn't
say are tax payer subsidized).
I also look at the consumption side. Last year, the US used 3 bln bushels of
US corn for ethanol production (plans for 4 bln bu 2008/09 - who knows).
That is 75 mln tonnes to make it more Canadian. 3 times Canadian wheat
production. 5 times Canadian wheat exports. 7 times the size of the
Canadian barley crop.
If the US biofuel policy weren't in place, US corn prices would be $2/bu.
Soybeans $6/bu. Wheat $4/bu. Similar levels Canadian crops.
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I guess the question that needs to be asked is what were the hedging problems. Would assume that while they covered themselves on corn maybe they didn't on oil. Other side might be the spread between ethanol and oil. I agree with Charlie that we as Canadian Grain farmers are much better off with an American ethanol industry than having none. Agstar you need to note that canadian malsters are playing a reject high priced locked in barley right now. What's better a good price locked in with a bankrupt company or a good price locked in with a company who can wriggle out of their obligation. Also note that value added in the canadian market often has only been successful after the orginal investors lost their shirt.
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http://www.ksgrains.com/ethanol/useth.html US ETHANOL FACTS
Ethanol is blended in about 50 percent of the nation’s gasoline supply.
According to the U.S. Department of Agriculture, ethanol yields 1.64 units of energy for each unit of energy it took to produce. That compares to just 0.8 units of energy from gasoline.
In 2007, ethanol use in the U.S. reduced C02-equivalent greenhouse gas emissions by approximately 10.1 million tons, equal to removing more than 1.5 million cars from America's roadways. Also, ethanol reduces tailpipe carbon monoxide emissions by as much as 30%, toxics content by 13% (mass) and 21% (potency), and tailpipe fine particulate matter (PM) emissions by 50%
The American Lung Association of Metropolitan Chicago credits ethanol-blended reformulated gasoline with reducing smog-forming emissions by 25% since 1990.
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Agstar77,
Demand for our grains is 'BAD'?
Who do you work for... it certainly can't be grain growers!... can it?
"LONDON, ENGLAND — Fired mainly by continued rapid growth in the United States, global use of grains in making ethanol in 2008-09 was projected by the International Grains Council (IGC) to post an increase of 30.4% over the previous year. While the percentage increase lagged the prior crop year’s gain of 32.1%, the net increase of 29.4 million tonnes was a new record and ran well ahead of the increase of 23.4 million in the preceding season.
The IGC projected global use of grain in making ethanol in the current season at 125.8 million tonnes, compared with 96.4 million in 2007-08 and 73 million in 2006-07. This season’s use was close to three times the 44.2 million tonnes used in making ethanol in 2004-05.
Based on IGC projections of worldwide disappearance of grains in 2008-09, forecast at 1.75 billion tonnes, ethanol use will account for 7.2%, against 5.7% in the prior season. Ethanol use represented just about half of forecast industrial use of grains in 2008-09, placed at 251.5 million tonnes, against 217.9 million in 2007-08.
Food use of all grains in 2008-09 was forecast by the IGC at 605.7 million tonnes, against 600 million in the preceding crop season, while feed use was projected to reach 773.6 million, compared with 751.2 million in 2007-08.
Expanding use for making ethanol, mainly in the U.S., accounted for most of the gain anticipated in 2008-09. Of the expected global use of 125.8 million tonnes, the U.S. accounted for 101.6 million, mostly as corn. Thus, U.S. use of grains to make ethanol was forecast to rise 32.3% from 76.8 million in the prior season. That was up from 24.1 million in 2004-05.
Corn comprised the main grain processed into ethanol, at 93% of global use and 99% in the United States. Wheat was a distant second, with 4.7 million tonnes expected to be used in 2008-09 to make ethanol on a global basis, of which 3.1 million was in the European Union.
The IGC said the U.S. leadership in expanding output of ethanol "was expected to slow from the recent very rapid rates, but with the utilization of maize likely to exceed 120 million tonnes within the next five years."
The Grain Council said the United States produced 24.5 billion liters of ethanol in 2007, and output in the first seven months of 2008 was 43% above the previous year. Industry annual capacity was currently estimated at 41.5 billion liters at 178 refineries. It said another 26 refineries were being built, and along with expansion projects at existing refineries, will raise capacity to 52 billion liters in the next few years. The IGC pointed out that this was much closer to the 58 billion liters of "traditionally manufactured" ethanol mandated to be used in 2015 by the Energy Independence and Security Act of 2007.
E.U. use of grains for making ethanol in 2008-09 was projected at 5.6 million tonnes, against 2.9 million in the previous crop season. Canada was projected at 2.3 million, against 1.7 million, and China was expected to use 13.8 million in 2008-09, compared with 13 million in 2007-08. The Council observed that high raw material costs slowed expansion plans in both the E.U. and Canada. Completion of new plants could result in a production increase in 2008-09.
The IGC also examined global use of grains in other industrial outlets. It estimated global use of grain to make starch at 91 million tonnes, up 4% from 87.5 million in 2007-08 and compared with 83.2 million in 2006-07.
For the first time in 2008-09, China will likely process more grains into starch than the United States, the IGC said. The IGC estimated that 25 million tonnes will be used in America to make starch, compared with 25.7 million in China. In 2007-08, the United States used 26.1 million tonnes and China 23.4 million.
The European Union was forecast to process 10.6 million tonnes into starch, against 10.8 million in the prior season. The European Union was the main user of wheat for starch, processing an expected 5.1 million tonnes of wheat as well as 5.5 million of corn.
Noting the downward trend in grain processing for starch in the United States, the Council attributed this to a downturn in production of high-fructose corn syrup due to consumer demand shifting to bottled water and low-calorie drinks.
Growth in China reflected a doubling in demand since 2004-05.
"Around half is for sweetener production, demand for which is soaring as a more affluent population turns to greater consumption of processed foods and deinks, especially in rapidly growing cities," the IGC stated. "Rising economic prosperity is also lifting demand for other products that use starch, such as paper and textiles."
The IGC projected grain used in brewing in 2008-09 at a global total of 33.6 million tonnes, against 32.9 million in 2007-08 and 31.7 million in 2006-07. Barley accounted for 27.2 million of the current year’s forecast, up from 26.9 million in the previous season.
The European Union accounted for 25% of world beer production, turning out 1.6 billion hectoliter, mainly using barley malt. The IGC said that growing consumption of beer in eastern European countries, as well as in the Commonwealth of Independent States, mainly Russia, as well as in China and other developing countries in Far East Asia and Latin America are sustaining growing beer consumption."
http://www.world-grain.com/news/daily_enews.asp?ArticleID=97689&e=tom4cwb@hotmail. com
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What would the price of corn (from there feedgrains) be today without a US
ethanol policy?
Given the result of the US election, is there more or less drive south of the
border to energy security?
I will grant the development of second (cellulose) and third (microbial/other
technology) generation ethanol but still a ways away. Next 5 years, however,
ethanol will be grain based.
On the yield have you ever looked at a chart comparing US average corn yields
to Canadian barley? I would comment that corn yields are surging ahead to
satisfy the new market while barley yields are sitting still. Average corn yields
in the US mid 150 bu/acre while Canadian barley at best 60 bu/acre ish.
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Yield increases do not necessarily mean higher profits. But they do need higher inputs, which means more for ag suppliers. Volumes are also good for grain companies. I would rather everyone recognize the value of ag production for food in a more sustainable way. The food markets live hand to mouth. Any natural disaster would be catastrophic for world food stocks.
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Agstar
The reason the food trade lives hand to mouth is our ability to produce surpluses. You will not change that unless there is a threat to supply. Sustainable demand leads to better returns and more investment in agriculture. I'm tired of the notion that farmers need to carry a cheap food policy on their backs.In the western world grain production solely for food has proven unsustainable without government subsidy. So for those that want to pick on the ethanol industry, I would suggest you look at our current food production system also. It doesn't cut it either.
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agstar77,
The risk managers at the CWB place virtually all the risk in our hands as 'designated area' produces... and little with buyers of our produce.
The SALES dept of the CWB works for the 'grain BUYER' at the cost of my farm.
If we don't market 'smart'... with proper risk management... WE ARE NOT COMPETITIVE GLOBALLY.
101 risk management strategies COULD be implemented by the CWB IF IT WERE VOLUNTARY.
BUT as the bull in the china shop... the CWB cannot properly create value... because they are too big... and will destroy our domestic value added industries if they actually 'extract a premium' as a practice throughout the 'designated area'.
For instance... the CWB cross hedged barley on the corn futures... and locked in $7/bu for our barley... 6mmt of the barley produced in 08-09.
Can you imagine what that would do to the livestock industry in Canada?
THE CWB CAN NOT DO WHAT you want it to do AGSTAR77... it would destroy agriculture in Canada.
SO;
The CWB makes claims that cannot be fulfilled... and expects me and others to believe lies that must not occur for the health of agriculture in Canada.
INDIVIDUAL RESPONSIBILITY is the only answer... that respects the assets of everyone.
Get it Agstar77?
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Charlie,
We are so far behind the EU in sustainable energy production and consumption... it should scare the crap out of us.
Our economy is based on growth... and as it turns out... it is actually exponential growth.
Example:
A test tube is filled with food for a bacteria.
Bacteria reproduction doubles each year... using up the comparable resources.
The food in the test tube will last 100 years.
on the 99th year... the test tube is half full... and the food half gone.
on the 98th year... the test tube is 25% full...and the food 75% left.
on the 97th year... the bacteria take only 12.5% of the food... and 87.5% is still there!
on the 96th year... the bacteria take only 6.25% of the food available... and 93.75% is still available.
on the 95th year... the bacteria take only 3.125% of the food available... and 96.875% is still available.
Can you imagine telling the bacteria that with 96.875% of their food left... on the 95th year of their existence... that there is a problem!
Suppose they listen... and figure out how to make 3 more test tubes?
Now there are 4 test tubes... 4 times as much food!
The bacteria will still only make it to 102 years... with 4 times as much food!
This is sustainability... or the lack thereof!
Exponential growth of our economy will destroy this planet!
PEOPLE are the important part of the human race & economy.... not money and things! EVER GROWING Consumption cannot rule our lives!
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